Powell says that the gradual path the central bank is pursuing in raising interest rates will allow wage growth to continue to accelerate after years of lagging behind.

Powell says that the Fed does need to keep in mind the dangers of moving rates up too slowly and allowing inflation to move up to unwelcome levels. But he says he is not seeing any threats of dangerous inflation increases at the moment.

Powell says the goal of the Fed is to prolong the current economic recovery by moving its key interest rate up at a gradual pace. The Fed raised rates three times last year but the level of its benchmark rate remains at a still low 1.25 percent to 1.5 percent.

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10:50 a.m.

Powell says that he believes there is still slack in the labor market that will allow the Federal Reserve to move gradually to raise interest rates even though the overall unemployment rate is at a 17-year low of 4.1 percent.

Powell pointed to the fact that participation in the labor force for men at the prime working age is still a full percentage point below where it was before the Great Recession began. He says the modest increases in wages also showed that there is still slack in the job market.

Powell says that he believed the labor market can strengthen further without causing an acceleration in inflation.

Powell's comments came during his second day of congressional testimony in delivering the Fed's semi-annual monetary report.